You may have heard the terms “value” and “growth” applied to share/equity funds. Here’s what they mean.
Value managers consider the current price of stocks as the critical element when selecting companies for their funds. They look for undervalued companies where the share price is well below the level they think it should have. They are not concerned about the growth prospects or profitability of the companies in their funds but rely on fundamental analysis to spot buying opportunities. Value managers have tended to perform better than growth managers over the last 12-18 months.
The BNZ’s International Equity Fund is an example of a “value” fund. This fund did not perform nearly as well as it’s “growth” cousins in the years leading up to October 2000. However, when the bubble burst in the US market, starting with the tech stocks, this fund came into its own delivering positive returns when most growth fund performances took a dive.
Growth managers attempt to identify companies with above-average growth prospects. They frequently pay above-market prices for the companies they feel will have superior growth or profitability.
The Dresdner RCM International Equity fund is a “growth” fund. Growth funds do well in times of economic expansion and the Dresdner fund is a good example of an actively managed growth fund consistently turning in results ahead of the market in general. When the world economy began to slow about a year ago so did the performance of this fund and others of its ilk.
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